LNG’s Dormant Mega-Projects Roused by Surging Demand From Asia

LNG’s Dormant Mega-Projects Roused by Surging Demand From Asia

After a lull, investors are turning their sights toward a stronger market for liquefied natural gas.

Royal Dutch Shell Plc, Total SA and other energy producers are looking again at plant construction projects deemed too risky just a year ago. About $150 billion worth of LNG ventures now have a better-than-even chance of going ahead in the next 18 months, according to Energy Aspects Ltd. Last year, only one gained approval.

The turnaround for the fuel shipped in tankers reflects a steady upward drift in the cost of energy of all kinds. LNG prices in Asia — the biggest market for the fuel — are higher than average, bolstered by demand from growing economies from China to India and Pakistan. That’s helping to eat away at an anticipated glut for the super-chilled fuel and reviving developers’ taste for making the long-term investments in expensive LNG infrastructure.

“It’s almost as if the entire market is changing its attitude,” said Tor Martin Anfinnsen, a senior vice president for marketing and trading at Equinor ASA, Norway’s biggest energy company. “The concern about oversupply has abated a bit.”

Other bullish signs include more orders for vessels used for imports and increased appetite for longer-term supply contracts.

“What everybody is looking for in the market is some assurance of demand and some stability of the price,” said Jeff Miers, a managing director of energy practice at Accenture Plc in Houston. “We are seeing interest picking up this year.”

The trend is spreading beyond the usual producers. BlackRock Inc., the world’s largest asset manager, wants to directly invest in LNG projects, which it sees complementing renewables as the world pushes for cleaner forms of energy.

Evidence of a mounting revival includes these milestones in the past month alone:

  • Cheniere Energy Inc. made a final investment decision on the third production line at its Corpus Christi plant in the U.S.
  • Anadarko Petroleum Corp. signed a preliminary long-term LNG supply deal with Tokyo Gas Co. and Centrica Plc from its Mozambique LNG project, bringing the $20 billion facility a step closer to final investment decision.
  • Total joined Arctic LNG 2, a project in northern Siberia being developed by Russia’s Novatek.
  • Malaysia’s state-owned oil and gas company Petroliam Nasional Bhdjoined Shell’s $31 billion LNG Canada project.
  • Venture Global LNG Inc. signed a 20-year supply contract with BP Plc.

“We’re seeing signs in the market that various people are getting more serious,” said Steve Hill, Shell’s executive vice president for gas marketing and trading. “Whether it’s this year or next or the year after, it’s a lot stronger than six months ago.”

Energy Aspects expects 77 million tons of annual production from new supply projects — valued at about $150 billion in total — has a better than 50 percent chance of reaching a final investment decision before 2020. Another 76 million tons has at least a 20 percent possibility.

That may ease what analysts at Barclays Bank Plc expect will be a “rapid” tightening of the LNG market in the early 2020s. After the biggest expansion of LNG supply since 2010, the pipeline for new plants, which typically take four to five years to build, is drying up.

‘Sweet Spot’

“A sweet spot for new LNG is emerging,” said Andrew Walker, a vice president at Cheniere Energy. “There is expected to be tightness in the market early next decade, and the horses are lining up to compete for the next supply cycle.”

Not everyone is so optimistic. Timera Energy, a London-based consulting company, says an annual LNG surplus of as much as 50 million tons could persist over the next three years. That would prompt developers to further put off investment decisions.

“The window of opportunity is narrow, with far more projects competing to go ahead over the next few years than the market can absorb in this period,” saidJames Taverner, an analyst at the industry consultant IHS Markit Ltd.

A project in Equatorial Guinea known as Fortuna LNG has already been delayed at least twice because of trouble getting financing. Schlumberger Ltd., a partner in the West Africa venture, pulled out last month.

Soaking Up

Analysts are split on how short the supply of LNG will be in the middle of the next decade, with some doubting a long-awaited deficit will ever arrive. Plants from Australia to the U.S. have pushed unprecedented volumes to the market. So far, new import markets such as Pakistan and Bangladesh as well as booming demand in China are absorbing that new supply.

“We all agreed that now demand will be up and the market will rebalance, but whether that’s 2022, 2023 or 2024, nobody knows,” said Gregor Pett, executive vice president for market analytics at German utility Uniper SE. “I would say we won’t get the exact point right, when it will be. We need to prepare and manage these cycles.”

These projects have a more than 50 percent chance of taking FID before 2020, according to Energy Aspects.

Project

Country

Company

Fortuna LNG*

Equatorial Guinea 

Ophir Energy

Calcasieu 

U.S.

Venture Global LNG

Tortue FLNG

Mauritania/Senegal

BP, Kosmos Energy

Mozambique

Mozambique

Anadarko, Mitsui

PNG Trains 3-5 

Papua New Guinea

ExxonMobil, Oil Search

LNG Canada P1

Canada

Shell, PetroChina, Korea Gas, Mitsubishi

Qatargas 5

Qatar 

Qatar Petroleum


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